Judgment:
R.K. Agrawal, J.
1. The Income Tax Appellate Tribunal, New Delhi has referred the following questions of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for opinion to this Court:-
'Whether the Income Tax Appellate Tribunal has been in error in holding that the assessee, a Development Officer, was entitled to 40% expenses in relation to incentive bonus to the tune of Rs. 4,569/-, Rs. 14,558/- and Rs. 19,300/- for the three years under reference respectively, received by him over and above his salary from the Corporation?'
2. The reference relates to the Assessment Years 1980-81 to 1982-83.
3. Briefly stated, the facts giving rise to the present reference are as follows:-
The respondent assessee was a Development Officer in the Life Insurance Corporation of India. During the assessment years in question he received certain incentive bonus from the Corporation amounting to Rs. 4,569/-, Rs. 14,558/- and Rs. 19,300/- respectively, in addition to his salary. He had claimed the expenses to the tune of 40% from the incentive bonus in respect of each assessment years. The Income Tax Officer had disallowed the claim. Feeling aggrieved, the respondent preferred separate appeals before the Appellate Assistant Commissioner who has allowed the claim by holding that 40% deduction was reasonable as in respect of the commission received similar expenses are being allowed. The Revenue, feeling aggrieved, preferred appeals before the Tribunal. The Tribunal has held that like expenses in connection with the earning of commission from the Corporation, similar deduction should be allowed in respect of the incentive bonus also. The Tribunal has accordingly upheld the order passed by the Appellate Assistant Commissioner.
4. We have heard Sri Shambhoo Chopra, learned Standing Counsel for the Revenue. No body has appeared for the respondent assessee.
5. The learned Standing Counsel submitted that unlike the agents of the Corporation, the respondent assessee was an employee of the Corporation and, therefore, there existed a relationship of employer and employee. According to him, the respondent was, thus, entitled to standard deduction as provided under Section 16(1) of the Act and nothing more, to meet the expenses incidental to employment. He further submitted that the incentive bonus or the bonus commission which the respondent had been granted was in relation to the work done for the employer and was in lieu or in addition tot he salary and formed part of the salary by virtue of Section 17(1)(iv) of the Act. In support of his aforesaid submissions, he has relied upon the following decisions:-
(i) Commissioner of Income Tax v. Ram Krishna Bank, (1995) 215 ITR 901
(ii) Commissioner of Income Tax v. Anil K. Hazarika, : [2001]248ITR8(SC) and
(iii) Commissioner of Income Tax v. Dr. Mrs. Usha Verma,
6. We have given our careful consideration to the submissions made by the learned Standing Counsel and we find that it is not in dispute that the respondent has been employed and was working as a Development Officer in the Life Insurance Corporation of India. A relationship of master and servant existed. In addition to his salary, he received incentive bonus which is co-related with the amount of insurance business done by him as a Development Officer. Section 17 of the Act defines 'salary', 'perquisite' and 'profits in lieu of salary'. Sub-Section (1) of Section 17 of the Act defines 'salary' as follows:-
'(1)'salary' includes-
(i) wages;
(ii) any annuity or pension;
(iii)any gratuity;
(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
(v) any advance of salary;
(va) any payment received by an employee in respect of any period of leave not availed of by him;
(vi) the annual accretion to the balance at the credit of employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under Rule 6 of Part A of the Fourth Schedule; and
(vii) the aggregate of all sums that are comprised in the transferred balance as referred to in Sub-rule (2) of Rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under Sub-rule (4) thereof;'
7. From a reading of the aforesaid provision, we find that under Clause (iv), commission is included in the term 'salary'. Incentive bonus is nothing else but commission paid to the Development Officer on the basis of the insurance business procured by him. The definition of 'salary' under Section 17 of the Act is wide enough to include the incentive bonus paid to an employee. It forms part of the salary.
8. The Andhra Pradesh High Court in the case of K.A. Choudhary v. Commissioner of Income Tax, : [1990]183ITR29(AP) M. Krishna Murthy v. Commissioner of Income Tax, : [1985]152ITR163(AP) Commissioner of Income Tax v. B. Chinnaiah, : [1995]214ITR368(AP) the Orissa High Court in the case of Commissioner of Income Tax v. Govind Chandra Pani, (1995) 213 ITR 783 the Rajasthan High Court in the case of Commissioner of Income Tax v. Shiv Raj Bhatia, P.N. Verma v. Commissioner of Income Tax, Commissioner of Income Tax v. Moti Mal Mohnot; Commissioner of Income Tax v. Jag Mohan Goyal; Commissioner of Income Tax v. Sheo Raj Bhatia; and the Full Bench of the Karnataka High Court in the case of Commissioner of Income Tax v. M.D. Patil, : [1998]229ITR71(KAR) has held that incentive bonus forms part of salary and in respect of salary income the deductions which are mentioned in Section 16 of the Act alone are admissible in addition to the commission, in respect of any allowance which has been specified in the notifications issued by the Central Government in exercise of its power conferred under Section 10(14)(i) or Section 10(14)(ii) of the Act to the extent so specified. Thus, the respondent who was the Development Officer in the Life Insurance Corporation of India, is not entitled to claim deduction of 40% of the amount from the incentive bonus over and above the deduction permissible under Section 16 of the Act. We are supported in our view with the decision of the Calcutta High Court in the case of Commissioner of Income Tax v. Ramlal Agarwala, : [2001]250ITR828(Cal) the Punjab and Haryana High Court in the case of B.M. Parmar, Development Officer, Life Insurance Corporation of India v. Commissioner of Income Tax, and Commissioner of Income Tax v. S.L. Singhal, Development Officer, the Orissa High Court in the case of Commissioner of Income Tax v. Bijay Kishore Kapoor, : [1993]202ITR129(Orissa) and Govind Chandra Pani (supra); the Andhra Pradesh High Court in the case of B. Chinnaiah (supra); the Rajasthan High Court in the case of Shiv Raj Bhatia, P.N. Verma, Moti Lal Mohnot, Jag Mohan Goyal, Sheo Raj Bhatia (supra); the Madras High Court in the case of Commissioner of Income Tax v. E.A. Rajendran, : [1999]235ITR514(Mad) ; and the Full Bench of the Karnataka High Court in the case of M.D. Patil (supra). Thus, the Tribunal was not justified in upholding the allowance of deduction of 40% as expenses from the incentive bonus.
9. So far the cases cited by the learned Standing Counsel are concerned, we find that in the case of Ram Krishna Bank (supra) The Gauhati High Court has held that the petitioner had not placed any other material, such as, the terms governing the assessee's employment and in the absence of such material being placed on record, it is not possible to take a different view than what has been taken by the Tribunal and the finding recorded by the Tribunal is based on the material on record. The Gauhati High Court, therefore, rejected the reference application and declined to call for a question.
10. In the case of Anil K. Hazarika (supra) the Apex Court has held that the question as to whether 40% deduction from the incentive bonus granted by the employer when the incentive bonus is assessable under the head Salary, is a question of law and after setting aside the order passed by the Gauhati High Court, had directed the Tribunal to refer the same for consideration.
11. The aforesaid two cases do not advance the case of the learned Standing Counsel and is of no help.
12. In the case of Dr. Mrs. Usha Verma (supra), the Punjab & Haryana High Court has held that if a person who is serving in a Government Medical College and by virtue of his employment with the Government, he was permitted to work in the paying clinics run in the college and those who chose to work were given a share in the fees and the permission to work in the paying clinic, the rate of fees, the share therein was given by the Government. The share as paid by the Government to its employees would fall within the expression 'fees paid in addition to the salary' and there was relationship of employee and employer in the paying clinic run by the Government. The aforesaid decision is not on the point in issue.
13. In view of the foregoing discussions, we answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee. There shall be no order as to costs.